Tuesday, August 17, 2010

Thanks Alphaville: "Testing the Hindenberg Omen"

Although CXO Advisory is one of our 1300 feeds and one I try to get to at least twice a week I somehow missed this. FT Alphaville didn't.
First CXO goes through the methodology of their test, in-depth as always, then:

...In summary, evidence from simple tests of a publicly available set of “confirmed” Hindenburg Omens suggests the possibility of usefulness, but reservations regarding small sample size and potential sample bias are strong.
The vivid image evoked by the name may be an important factor in media attention to the Hindenburg Omen.

Gee, d'yuh think?

FT Alphaville also directs us to an interesting story of attempted 'corners'.

For those not old enough to remember the Erie Wars, the standard procedure for officers and directors on the receiving end of an attempted stock corner was simply to issue more stock. Completely illegal but it was a effective as all get out.
(as a side note one of my mentors once warned me off a similar adventure by saying "They got more stock than you got money")

This was how Jay Gould, Jim Fisk and Daniel Drew cost Cornelius Vanderbilt a bundle as he tried to buy the Erie Railroad..
On the other hand the Commodore was able to corner the New York & Harlem Railway in both 1863 and 1864 to punish short-selling elected officials.
In 1863 it was the City Council who had granted the franchise, sold the stock and then pulled the franchise, in 1864 it was the state legislature who sold more than the issued and outstanding.

That means he got to set the price they were allowed to cover at.
The same thing happened with the Northern Pacific corner of May 1901, gunning the stock from just under $150 to $1000 per share. This of course caused a panic as the shorts sold everything else they owned in an attempt to stay liquid.

Robert Sobel's Panic on Wall Street has an entire chapter called "Battle of the Titans" devoted to the story.
I suppose he wasn't being melodramatic being that James J. Hill's broker was Pierpoint Morgan and E.H. Harriman's was Jacob Schiff of Kuhn, Loeb & Company.